After a banner year for equities in 2017, with major bourses notching all-time highs, investors now mull over what 2018 might unfold. Many market pundits believe that this will be another solid year for U.S. stocks. Benchmarks have already kicked off the New Year on a high note, with the tech-heavy Nasdaq closing above 7,000 for the first time.
Investors are betting that lowering of corporate tax and solid economic growth will lead to strong earnings growth. Record end-of-year holiday sales, in the meanwhile, have given traditional retailers and department store chains a shot in the arm as Americans remain optimistic about their financial wealth.
Given such bullish trends, investing in big-brand stocks seems prudent. They are well-established and financially stable enough to cash in on this uptrend. But, there are significant headwinds confronting this year as well. We shouldn’t forget that such bull runs that have sent the bourses to record highs may soon come crashing down. Valuation measures such as price-earnings ratios are raising caution. In the wake of adverse events as well, one can fall back on these stocks. After all, they have established business models and tend to draw consumers and investor attention even when the equity market is choppy.
Winners From the Republican Tax Bill
The House of Representatives approved the biggest overhaul of the U.S. tax code in 30 years. The headline-grabbing move lowered the corporate tax rate from 35% to 21%. Also, the tax cut will be implemented next year instead of being delayed until 2019. Republicans also repealed the 20% corporate alternative minimum tax. Meanwhile, any income brought back from overseas will be taxed 8% to 15.5%, instead of the current 35%.
A one-time low tax rate on foreign profits will help multinationals, including large tech majors, bring funds held overseas back to the United States. Bringing back massive overseas cash pile will help tech companies carry out a combination of share buybacks, dividend payments and M&A activities.Banks also face a high tax burden, which makes them big gainers when tax rates go down. As per KBW estimates, major banks will enjoy a 20% or more hike in profits if the corporate tax rate is cut to 20%.
The tax bill, in the meanwhile, will provide temporary tax relief to both wealthy and middle-class Americans. This in turn will increase discretionary income that may boost demand for consumer goods, eventually helping retailers.
Retail Stages a Solid Comeback
Retailers also witnessed plenty of green in the holiday season. Total retail sales jumped 4.9% compared with the same period last year. This turned out to be the highest year-over-year rise since 2011, according to Mastercard SpendingPulse report released on Dec 26.
The strong economy was a contributing factor but a pretty low unemployment rate encouraged investors to spend even more this holiday season. Moreover, consumers continue to feel confident about spending this year and beyond. As per the Conference Board, consumer confidence continues to hover near the 17-year high scaled last November.
Pricey Stock Market
Two-third of the money managers, in the meanwhile, finds the U.S. stock market’s recent record run unsettling. The gains in the current nine-year-old bull market are nearly 300%.
This is the second-strongest bull run since World War II, trailing only to a massive 417% gain during October 1990 and March 2000, per data compiled by LPL Financial and FactSet Research Systems Inc.
Time to Buy Big Brands: 5 Solid Choices
With the U.S. stock market incessantly hitting intraday and closing highs, investing in big-brand companies will be judicious. Such companies sell widely accepted products and services that can make most of the positive trends. But, if overvaluation fears pull the market down in the near term, these stocks will offer some respite as they boast stable cash flows. Needless to say, the value of brands is that they instantly convey to consumers information about quality, durability and consistency. These traits help such stocks counter market gyrations.
We have thus selected five of the best big-brand American stocks that have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Caterpillar Inc. CAT manufactures and sells construction and mining equipment. The company was founded in 1925 and is headquartered in Peoria, IL. The Zacks Consensus Estimate for its current-year earnings rose 0.8% in the last 60 days. The stock’s expected growth rate for the current year is 88.6%, better than the industry’s expected gain of 34%. Caterpillar yielded a return of 69.9% in 2017.
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Facebook, Inc. FB provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. The company was founded in 2004 and is headquartered in Menlo Park, CA. The Zacks Consensus Estimate for its current-year earnings increased 1.8% in the last 60 days. The stock’s expected growth rate for the current year is 37.6%, higher than the industry’s projected gain of 10.1%. Facebook yielded a return of 53.4% last year.
Morgan Stanley MS provides various financial products and services to corporations, governments, financial institutions, and individuals in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. Morgan Stanley was founded in 1924 and is headquartered in New York. The Zacks Consensus Estimate for its current-year earnings inched up 0.3% in the last 60 days. The company’s expected growth rate for the current year is 22.7%, higher than the industry’s estimated gain of 12.4%. Morgan Stanley yielded a return of 24.2% in 2017.
Wal-Mart Stores, Inc. WMT operates retail stores in various formats worldwide. The company was founded in 1945 and is headquartered in Bentonville, AR. The Zacks Consensus Estimate for its current-year earnings increased 1.4% in the last 60 days. The stock’s expected growth rate for the current year is 2.6%, in contrast to the industry’s projected decline of 2.1%. Wal-Mart Stores yielded a return of 42.9% last year.
McDonald's Corporation MCD operates and franchises McDonald’s restaurants in the United States and internationally. The company was founded in 1940 and is based in Oak Brook, IL. The Zacks Consensus Estimate for its current-year earnings advanced 0.2% in the last 30 days. The company’s expected growth rate for the current year is 14.5%, in contrast to the industry’s projected decline of 0.3%. McDonald's yielded a return of 41.4% in 2017.
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